Uzbekistan

Index:

PEOPLE

Located in the heart of Central Asia between the Amu Darya and Syr Darya Rivers, Uzbekistan has a long and interesting heritage. The leading cities of the famous Silk Road--Samarkand, Bukhara, and Khiva--are located in Uzbekistan, and many well-known conquerors passed through the land. Alexander the Great stopped near Samarkand on his way to India in 327 B.C. and married Roxanna, daughter of a local chieftain. Conquered by Muslim Arabs in the eighth century A.D., the indigenous Samanid dynasty established an empire in the 9th century. Genghis Khan and his Mongols overran its territory in 1220. In the 1300s, Timur, known in the west as Tamerlane, built an empire with its capital at Samarkand. Uzbekistan's most noted tourist sites date from the Timurid dynasty. Later, separate Muslim city-states emerged with strong ties to Persia. In 1865, Russia occupied Tashkent and by the end of the 19th century, Russia had conquered all of Central Asia. In 1876, the Russians dissolved the Khanate of Kokand, while allowing the Khanates of Khiva and Bukhara to remain as direct protectorates. Russia placed the rest of Central Asia under colonial administration, and invested in the development of Central Asia's infrastructure, promoting cotton growing and encouraging settlement by Russian colonists.

In 1924, following the establishment of Soviet power, the Soviet Socialist Republic of Uzbekistan was founded from the territories including the Khanates of Bukhara and Khiva and portions of the Ferghana Valley that had constituted the Khanate of Kokand. During the Soviet era, Moscow used Uzbekistan for its tremendous cotton growing and natural resource potential. The extensive and inefficient irrigation used to support the former has been the main cause of shrinkage of the Aral Sea to less than a third of its original volume, making this one of the world's worst environmental disasters. Uzbekistan declared independence on September 1, 1991. Islam Karimov, former First Secretary of the Communist Party, was elected President in December 1991 with 88% of the vote; however, the election was not viewed as free or fair by foreign observers.

GOVERNMENT AND POLITICAL CONDITIONS

Constitutionally, the Government of Uzbekistan provides for separation of powers, freedom of speech, and representative government. In reality, the executive holds almost all power. The judiciary lacks independence, and the legislature--which meets only a few days each year--has little power to shape laws. The president selects and replaces provincial governors. Under terms of a December 1995 referendum, President Karimov's first term was extended. Another national referendum was held January 27, 2002 to again extend Karimov's term. The referendum passed, and Karimov's term was extended to December 2007 by the parliament. Most international observers refused to participate in the process and did not recognize the results, dismissing them as not meeting basic standards. The 2002 referendum also included a plan to create a bicameral parliament.

Elections for the new bicameral parliament took place on December 26, 2004, but no truly independent opposition candidates or parties were able to take part. Independent political parties were allowed to organize, recruit members, and hold conventions and press conferences, but were denied registration under restrictive registration procedures. The Organization for Security and Cooperation in Europe (OSCE) limited observation mission concluded that the elections fell significantly short of OSCE commitments and other international standards for democratic elections.

Terrorist bombings were carried out March 28-April 1, 2004 in Tashkent and Bukhara. It is not clear who committed the attacks, but Karimov assigned blame to Islamic extremists. In May 2005, violence erupted in the eastern city of Andijon following armed attacks against a prison, the local government headquarters, and other government facilities. These incidents, combined with mass demonstrations against the jailing of local men on charges of "Islamic extremism" escalated into violence when Uzbek troops responded to the protestors with gunfire. The civilian death toll from the violence has been estimated to be in the hundreds, though Uzbek authorities officially confirmed only 187 casualties. President Karimov identified the protestors as Islamic militants and fundamentalists who provoked the government's violent response. Karimov's opponents believed the conflict was a product of the President's ongoing policy to suppress all forms of dissent in Uzbekistan.

Human RightsUzbekistan is not a democracy and does not have a free press. Several political parties have been formed with government approval but have yet to show interest in advocating alternatives to government policy. No independent political parties have been registered, although in 2002-2003 they were able for the first time in several years to conduct grass-roots activities and to convene organizing congresses. Although multiple media outlets (radio, TV, newspaper) have been established, these either remain under government control or rarely broach political topics.

Several prominent opponents of the government have fled, and others have been arrested. The government severely represses those it suspects of Islamic extremism, particularly those it suspects of membership in the banned Party of Islamic Liberation (Hizb ut-Tahrir). Some 5,300 to 5,800 suspected extremists are incarcerated. This number fluctuates, as hundreds are amnestied periodically. Prison conditions remain very poor, particularly for those convicted of extremist activities, and a number of such prisoners are believed to have died over the past several years from prison disease and abuse. The police force and the intelligence service use torture as a routine investigation technique. Following the visit of the UN Special Rapporteur on Torture, the Government of Uzbekistan in May 2003 drafted an action plan to implement the Special Rapporteur's recommendations. The government began to enact a number of its provisions, but its violent actions in May 2005 in Andijon have been widely condemned by other nations and human rights groups. It continues to reject calls by the international community to allow an international, independent inquiry of the turbulent events.

Principal Government OfficialsPresident and Chairman of the Cabinet of Ministers--Islam KarimovPrime Minister--Shavkat Mirziyaev

Other Key OfficialsChairman, National Bank-Foreign Economics--Saidakhmad RakhimovChairman, State Bank--Fayzulla MullajanovChairman, State Committee on Statistics--Gofurjon KudratovChairman, State Property--Dilshod MusaevChairman, State Committee for Customs--Sodirkhon NosirovChairman, State Committee for Taxation--Botir ParpievChairman, State Committee for Geology and Mineral--Nurmahammad AkhmedovChairman, National Security Service--Rustam InoyatovChairman, Committee on Protection of State Border--Ilkhom IbragimovSecretary, National Security Council--Murod AtaevAmbassador to the United States--Abdulaziz KamilovAmbassador to the United Nations--Alisher Vohidov

The Republic of Uzbekistan maintains an embassy at 1746 Massachusetts Ave., NW, Washington, DC 20036. Tel.: (202) 887-5300; fax (202) 293-6804. Its consulate and mission to the UN in New York are located at 866 United Nations Plaza, Suite 326/327a, New York, NY 10017. Consulate tel.: (212) 754-7403; fax: (212) 486-7998.

ECONOMY

The economy is based primarily on agriculture and agricultural processing. Uzbekistan is a major producer and exporter of cotton. It also is a major producer of gold, with the largest open-pit gold mine in the world, and has substantial deposits of copper, uranium, strategic minerals, gas, and oil. Since independence, the government has stated that it is committed to a gradual transition to a free market economy but has been extremely cautious in moving to a market-based economy.

Although it is difficult to make an accurate estimate of economic growth in Uzbekistan--because of the unreliable nature of government statistics, which often serve political rather than economic ends--economic growth is far below potential due to:

The country's poor investment climate;

Failure to attract foreign investment;

An extremely restrictive trade regime, implemented in order to meet a strategy of limiting imports of consumer goods;

Failure to reform the agricultural sector of the economy, potentially the engine of economic growth for this largely rural economy; and

The price system in Uzbekistan, which is not functioning properly due to government intervention in markets.

The government runs a strict import subsidies regime to control foreign trade and prevent capital outflow. Substantial structural reform is needed, particularly in the area of improving the investment climate for foreign investors and in freeing the agricultural sector from smothering state control. Although the government has committed itself in theory to the provisions of the International Monetary Fund's (IMF) Article VIII regarding currency convertibility for current account operations, in practice firms can wait up to three months for conversion. Convertibility restrictions and other government measures to control economic activity, (e.g., harassment of foreign-owned companies, import and export restrictions, and intermittent border closings) have constrained economic growth and led international lending organizations to suspend or scale back credits. The government has made progress in reducing the budget deficit, due in part to import substitution policies and high excise taxes. However, government statistics understate the budget deficit, while overstating economic growth.

GDP and EmploymentThe Uzbek Government claims that the GDP rose 7.2% in 2006; however, the U.S Government assesses GDP growth in 2006 as close to zero. Unemployment and underemployment are very high, but reliable figures are difficult to obtain, as no recent credible surveying has been done. Unofficially, unemployment is estimated around 10% and underemployment around 20%. Underemployment in the agricultural sector is particularly high--which is important given the fact that 60% of the population is rural-based. Many observers believe that employment growth and real wage growth have been stagnant, given virtually no growth in output.

LaborLiteracy in Uzbekistan is almost universal, and workers are generally well-educated and well-trained. However, worsening corruption in the country's education system in the past few years has begun to erode Uzbekistan's advantage in terms of its human capital, as grades and degrees are routinely purchased. Most local technical and managerial training does not meet international business standards, but foreign companies engaged in production report that locally hired workers learn quickly and work effectively. Foreign firms generally find that younger workers, untainted by the Soviet system, work well at all levels. The government has significantly curbed a long-time program emphasizing foreign education, which in past years annually sent about 50 students to the United States, Europe, and Japan for university degrees, after which they have a commitment to work for the government for 5 years. Reportedly, about 60% of the students who studied abroad found employment with foreign companies upon their return, despite their 5-year commitment to work in the government. In addition, Uzbekistan subsidizes studies for students at Westminster University--the only Western-style institution in Uzbekistan. In 2003, Westminster admitted about 360 students, and the government funded about half of the students' education. Education at Westminster costs $4,800 per academic year.

With the closure or downsizing of many foreign firms, it is relatively easy to find qualified, well-trained employees, and salaries are very low by Western standards. The government has implemented salary caps in an attempt to prevent firms from circumventing restrictions on the withdrawal of cash from banks. Some firms had tried in the past to evade these limits on withdrawals by inflating salaries of employees, allowing firms to withdraw more money. These salary caps prevent many foreign firms from paying their workers as much as they would like. Labor market regulations in Uzbekistan are similar to those once used in the Soviet Union, with all rights guaranteed but some rights unobserved. Unemployment is a growing problem, and the number of people looking for jobs in Russia, Kazakhstan, and Southeast Asia is increasing each year. Business analysts estimate that a high number of Uzbek citizens are working abroad. Estimates range from lows of 3 million to highs of 5 million Uzbek citizens of working age living outside Uzbekistan, most in neighboring countries or Russia. However, the government does not acknowledge these unofficial reports.

Prices and Monetary and Fiscal PolicyInflation was approximately 25% in 2005. In order to combat inflation, the government has exercised strict currency controls, and severe shortages of cash exist in the country. Despite currency convertibility, a freely determined black market rate continues to exist for the soum. As of March 2007, the difference between the official and black market exchange rates was approximately 200 soum in exchange for U.S. dollars. Liberalization of its trade regime is a prerequisite for Uzbekistan to proceed to an IMF-financed program.

Outstanding external debt reached $4.7 billion in 2006. Tax collection rates remained high, due to the use of the banking system by the government as a collection agency. Technical assistance from the World Bank and from the UN Development Program (UNDP) is being provided to reform the Central Bank and Ministry of Finance into institutions that conduct market-oriented fiscal and monetary policy. Lack of reform in the banking system constrains banks' profits and limits their role as financial intermediaries, thus inhibiting the ability of citizens or private companies to obtain credit and other banking services.

Agriculture and Natural ResourcesAgriculture and the agro-industrial sector contribute more than 40% to Uzbekistan's GDP. Cotton is Uzbekistan's dominant crop, accounting for roughly 20% of the country's exports in 2005. Uzbekistan also produces significant amounts of silk, fruit, and vegetables. Virtually all agriculture involves heavy irrigation. Farmers and agricultural workers have very low incomes because the government uses the difference between the world prices of cotton and wheat and what it pays the farmers to subsidize highly inefficient capital-intensive industrial concerns, such as factories producing automobiles, airplanes, and tractors.

Consequently, agricultural productivity is low, with many farmers focusing on producing fruits and vegetables--for which supply and demand determine the price--on small plots of land, as well as smuggling cotton and wheat across the border with Kazakhstan and Kyrgyzstan in order to obtain higher prices.

Minerals and mining also are important to Uzbekistan's economy. Gold is Uzbekistan's second most important foreign exchange earner, unofficially estimated at around 20%. Uzbekistan is the world's seventh-largest producer, mining about 80 tons per year, and holds the fourth-largest reserves in the world. Uzbekistan has an abundance of natural gas, used both for domestic consumption and export; oil almost sufficient for domestic needs; and significant reserves of copper, lead, zinc, tungsten, and uranium. Inefficiency in energy use is extremely high, given the failure to use realistic price signals to cause consumers to conserve energy.

Trade and InvestmentUzbekistan's export/import policy is based on import substitution. The highly over-regulated trade regime has led to both import and export declines since 1996, although imports have declined more than exports, as the government squeezed imports to maintain hard currency reserves. Draconian tariffs and sporadic border closures and crossing "fees" decrease imports of both consumer products and capital equipment. Uzbekistan's traditional "trade" partners are from the Commonwealth of Independent States (CIS), notably Russia, Ukraine, and Kazakhstan. Non-CIS partners have been increasing in importance in recent years, with the European Union, South Korea, Germany, Japan, and Turkey being the most active.

Uzbekistan is a member of the IMF, the World Bank, the Asian Development Bank, the Islamic Development Bank, and the European Bank for Reconstruction and Development. It has observer status at the World Trade Organization (WTO) and has publicly stated its intention to accede to the WTO. It is a member of the World Intellectual Property Organization and is a signatory to the Convention on Settlement of Investment Disputes between States and Nationals of Other States, the Paris Convention on Industrial Property, the Madrid Agreement on Trademarks Protection, and the Patent Cooperation Treaty. In 2006, Uzbekistan was again placed on the special "301" Watch List for lack of intellectual copyright protection.

Since Uzbekistan's independence, U.S. firms have invested roughly U.S. $500 million in Uzbekistan. 2006 was one of the worst years for foreign investment, especially U.S. Due to declining investor confidence, currency convertibility problems, and changes to Uzbek legislation, numerous international investors have left the country or are considering leaving. The Government of Uzbekistan declared bankrupt the Newmont Mining joint venture, the largest U.S. investor. Caterpillar Tractors pulled out in late 2006. Chevron-Texaco set up operations in 1992 and is focusing on producing lubricants for the Uzbek market. Coca Cola, one of the largest U.S. franchises, weathered problems in previous years. No large, new investments have been made by U.S. firms in the last 5 years.

DEFENSE

Uzbekistan possesses the largest and most competent military forces in the Central Asian region, having around 65,000 people in uniform. Its structure is inherited from the Soviet armed forces, although it is moving rapidly toward a fully restructured organization, which will eventually be built around light and Special Forces. The Uzbek Armed Forces' equipment is not modern, and training, while improving, is neither uniform nor adequate yet for its new mission of territorial security. The government has accepted the arms control obligations of the former Soviet Union, acceded to the Nuclear Non-Proliferation Treaty (as a non-nuclear state), and has supported an active program by the U.S. Defense Threat Reduction Agency (DTRA) to demilitarize and clean up former weapons of mass destruction-related facilities in western Uzbekistan (Nukus and Vozrozhdeniye Island), as well as to guard against the proliferation of radiological materials across its borders. The Government of Uzbekistan spends about 3.7% of GDP on the military.

Beginning in the late 1990s until 2004, the government received U.S. Foreign Military Financing (FMF), International Military Education and Training (IMET), and other security assistance funds. Beginning in 2004, new FMF and IMET assistance to Uzbekistan was stopped, as the Secretary of State, implementing U.S. Government legislation, was unable to certify that the Government of Uzbekistan was making progress in meeting its commitments, including respect for human rights and economic reform, under the U.S.-Uzbekistan Strategic Framework Agreement. Uzbekistan approved U.S. Central Command's request for access to a vital military air base in southern Uzbekistan following the September 11, 2001 terrorist attacks in the U.S., but asked the U.S. to leave in July 2005. All U.S. forces had departed this facility by November 2005.

FOREIGN RELATIONS

Uzbekistan joined the Commonwealth of Independent States (CIS) in December 1991. However, it is opposed to reintegration and withdrew from the Collective Security Treaty Organization (CSTO) in 1999. In November 2005, Uzbekistan signed an alliance treaty with Russia, stating that an attack against one will be considered an act of aggression against both. It re-joined the CSTO in 2006.

Uzbekistan participated in the CIS peacekeeping force in Tajikistan and in UN-organized groups to help resolve the Tajik and Afghan conflicts, both of which it viewed as posing threats to its own stability. Uzbekistan was an active supporter of U.S. efforts against worldwide terrorism and joined the coalition combating terrorism in Afghanistan. It continues to support coalition anti-terrorist operations in Afghanistan by granting access to Germany to an air base in southern Uzbekistan.

Uzbekistan is a member of the United Nations, the Euro-Atlantic Partnership Council, NATO's Partnership for Peace, and the Organization for Security and Cooperation in Europe (OSCE). It belongs to the Organization of the Islamic Conference (OIC) and the Economic Cooperation Organization--comprised of the five Central Asian countries, Azerbaijan, Turkey, Iran, Afghanistan, and Pakistan. In 1999, Uzbekistan joined the GUAM alliance (Georgia, Ukraine, Azerbaijan, and Moldova), which was formed in 1997 (making it GUUAM), but formally withdrew in 2005. Uzbekistan is also a member of the Shanghai Cooperation Organization (SCO) and hosts the SCO's Regional Anti-Terrorist Structure (RATS) in Tashkent.

The country is a founding member of and remains involved in the Central Asian Union, formed with Kazakhstan and Kyrgyzstan, joined in March 1998 by Tajikistan. In 2002, Uzbekistan joined the Central Asian Cooperation Organization (CACO), which also includes Tajikistan, Kazakhstan, and Kyrgyzstan. In 2006, Uzbekistan joined the Eurasian Economic Community (EurASEC), comprising Belarus, Kazakhstan, Kyrgyzstan, Russia, Tajikistan, and Uzbekistan.

U.S.-UZBEK RELATIONS

The U.S. recognized the independence of Uzbekistan on December 25, 1991, and opened an Embassy in Tashkent in March 1992. U.S.-Uzbek relations had flourished but have become strained since the changes in government in Georgia, Ukraine, and Kyrgyzstan in 2003-05 and especially since the violent events in Andijon in May 2005. Relations had been boosted by the March 2002 meeting between President Bush and President Karimov in Washington, DC, where the two countries signed the Declaration of Strategic Partnership. Although high-level visits to Uzbekistan increased after September 11, 2001, including those of former U.S. Secretary of Defense Donald Rumsfeld and former U.S. Secretary of State Colin Powell, and numerous congressional delegations, they declined after the Andijon events of May 2005.

The U.S. believes that the development of an independent, stable, prosperous, and democratic Central Asia is vital for the inhabitants of Central Asia and the entire world. As the most populous country in Central Asia and the geographic and strategic center of Central Asia, Uzbekistan traditionally has played a pivotal role in the region. The United States accordingly has sought to develop a broad relationship covering political, human rights, military, nonproliferation, economic, trade, assistance, education, health, and related issues. In 2007 the two nations engaged in discussions exploring ways to advance cooperation and engagement in areas where cooperation has been strong, in areas to realize the potential cooperation, and in areas where serious differences remain. In the past, the U.S. has consulted closely with Uzbekistan on regional security problems, and Uzbekistan had been an ally of the United States at the United Nations. Uzbekistan supported the United States on foreign policy and security issues ranging from Iraq to Cuba, and nuclear proliferation to narcotics trafficking. It has occasionally sought active participation in Western security initiatives under the Partnership for Peace, OSCE, and the Euro-Atlantic Partnership Council. In the past, Uzbekistan viewed its American ties as balancing regional influences, helping Uzbekistan assert its own regional role, and encouraging foreign investment. Uzbekistan also supported U.S. military actions in Afghanistan and of the global war against terror. However, this support, both military and at the United Nations, has diminished significantly in the aftermath of the May 2005 Andijon events and continuing strains in the U.S.-Uzbekistan bilateral relationship.

The tumultuous events in Andijon in May 2005 and the subsequent U.S. condemnation of President Karimov's actions rendered the future relationship between the two nations uncertain. In June 2005, Karimov refused international and U.S. demands for a formal investigation of the Andijon events, exacerbating the divide between the two nations. Also in June 2005, the Government of Uzbekistan effectively expelled the Peace Corps by failing to renew volunteers' visas. In July 2005, Uzbekistan asked U.S. forces to leave an airbase that had been used to fight the war against terrorism in Afghanistan. In 2005 and 2006, the Government of Uzbekistan also ended some forms of bilateral cooperation, particularly in the area of encouraging civil society, by expelling international non-governmental organizations (NGOs) who were U.S. Government implementing partners. Earlier, the government had registered two local human rights organizations, the Independent Human Rights Organization of Uzbekistan in March 2002 and Ezgulik in March 2003. Uzbek enforcement of constitutional safeguards ensuring personal, religious, and press freedom and civil liberties is weak. The United States urges greater reform in Uzbekistan to promote long-term stability and prosperity. Registering independent political parties and additional human rights NGOs, allowing them and other NGOs to function, allowing greater freedom of the press, of assembly, and of religious freedom would be important steps.

Bilateral Economic Relations

Trade and investment. Trade relations are regulated by a bilateral trade agreement, which entered into force January 14, 1994. It provides for extension of most-favored-nation trade status between the two countries. The U.S. additionally granted Uzbekistan exemption from many U.S. import tariffs under the Generalized System of Preferences (GSP status) on August 17, 1994. A Bilateral Investment Treaty was signed December 16, 1994; it has been ratified by Uzbekistan and received advice and consent of the U.S. Senate in October 2000. However, the Bilateral Investment Treaty will be unlikely to enter into force until Uzbekistan embarks on economic reform. The government is taking some modest steps to reduce the red tape that constrains the nascent private sector.

Assistance. Once significant, the United States' humanitarian and technical assistance to Uzbekistan has decreased markedly since 2004, both as a result of government actions against U.S. implementing partners and U.S. Government restrictions on aid. Since its independence, the U.S. has provided technical support to Uzbekistan's efforts to restructure its economy and to improve its environment, education, and health care system, provided support to nascent NGOs, and provided equipment to improve water availability and quality in the Aral Sea region. Through the U.S. Agency for International Development (USAID) and the Embassy's Public Affairs Section, the U.S. Government continues to support educational and professional exchanges and other programs that offer Uzbeks the opportunity to study in the United States and to establish professional contacts with their American counterparts. The Departments of State and Defense provide technical assistance in the form of equipment and training to enhance Uzbekistan's control over its borders and its capabilities to interdict the illicit movement of narcotics, people, and goods, including potential weapons of mass destruction-related items. In FY 2003, the United States provided roughly $87.4 million in humanitarian aid, technical assistance, military-to-military funding, and microcredit support in Uzbekistan. U.S. assistance grew to approximately $101.8 million in FY 2004, but fell to $92.6 million in FY 2005. These programs were designed to promote market reform and to establish a foundation for an open, prosperous, democratic society. Starting in 2004, the Secretary of State has been unable to certify that Uzbekistan has met its obligations under the bilateral 2002 Strategic Framework Agreement. As a result, more than $28 million in aid to the Uzbek central government has been withheld since FY 2004.

USAID provides both technical and humanitarian assistance. Technical assistance to Uzbekistan promotes sound fiscal and management policies, a strengthened business enabling environment, expanded microfinance programs, enhanced competitiveness of the agribusiness sector, increased citizens' participation in political and economic decision making, improved sustainability of social benefits and services, reduced environmental risks to public health, and other multi-sector reform programs. The USAID/Central Asian Republics Uzbekistan health program focuses on four chief needs: primary health care reform, infectious disease control, drug demand reduction, and reproductive and maternal and child health. Programs are designed to develop local capacity to protect human rights, increase access to information, and promote mechanisms for citizens to engage with their local government. U.S. Government funds also support the work of non-governmental organizations to prevent trafficking in persons and care for victims.

Peace Corps staff arrived in Uzbekistan in August 1992, and a bilateral agreement to establish the Peace Corps in Uzbekistan was signed November 4, 1992. The first volunteers arrived in December 1992. Peace Corps Volunteers were active in English teaching, small business development, public health, and women's issues. However, Uzbekistan failed to renew visas for Peace Corps volunteers in 2005, ending the Peace Corps presence in the country. The U.S. Trade and Development Agency helps fund feasibility studies by U.S. firms and provides other planning services related to major projects in developing countries including Uzbekistan. Department of State-managed exchange programs, farmer-to-farmer exchanges, and the Department of Commerce's Special American Business Internship Training Program (SABIT) contribute to expansion of technical know-how and support bilateral relations. The U.S. also provides export finance/guarantees and political risk insurance for U.S. exporters and investors through the U.S. Export-Import Bank and the Overseas Private Investment Corporation (OPIC). Proceeds from the U.S. Department of Agriculture's Commodity Monetization Program are scheduled to finance more than 30 farmer assistance and rural development projects which were approved jointly by U.S. and Uzbek officials in 2005. Some of the selected projects are already underway.

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